Fintech bodies have rounded on the City watchdog for “cherry-picking” its regulation of buy-now pay-later firms today, after it threatened executives with jail time for contravening financial promotion rules.
City A.M. revealed on Monday that the Financial Conduct Authority, which is expected to draw up specific rules to regulate the deferred-payment products by 2024, wrote to bosses last week warning that any communication and product explainers on BNPL products constitute ‘financial promotion’ and therefore fall within its jurisdiction.
The move has irked some sections of the fintech industry, however, who have suggested the watchdog has clamped down hard with financial promotion rules due to a lack of tailored regulation.
“Buy-now pay-later should have been regulated a long time ago, but it needs to be done properly,” Luke Kosky, fintech lead at sector group Coadec told City A.M.
“Cherry-picking which activities are now to be regulated is bad for consumers, bad for firms and bad for innovation.”
In a letter seen by City A.M. the regulator demanded all communication regarding BNPL products is now signed off by regulator-approved individuals. One BNPL firm claimed the letter had also gone to their main retail customers and spooked them into pulling access to the products en masse.
Speaking with City A.M., Russ Shaw, chief of tech body Tech London Advocates, said regulation is “ultimately a good thing” but warned it must not “stifle innovation in the UK’s world leading fintech sector”.
“Ultimately, loopholes leave regulation open to interpretation and can be misleading and inefficient. The FCA and the fintech sector must come together to find an equitable solution as the status quo is not working,” he said.
“British fintech businesses are pioneering, they are creating jobs and generating growth for the UK economy – a vested interest exists for all parties to come together, work through differences and provide a balanced approach around rules and regulations.”
The Treasury has drawn up a framework for regulation of the sector which includes enhanced affordability checks and allowing customers to take complaints to the Financial Ombudsman Service. But ministers and the regulator have faced criticism over the pace of regulation despite warnings of the “urgent” need for oversight last year.
The FCA hit back at the accusations from BNPL groups today, however, claiming “this isn’t a loophole, it’s the law.”
“Consumers facing higher cost of living and who are searching for credit that meet their needs would expect us to enforce it,” a spokesperson told City A.M..
“The standard for financial promotions is that they are clear, fair and not misleading. It would be a concern if any firm found this a significant barrier.”
The spokesperson added that the government plans to publish a second consultation paper on the regulation of the sector more broadly, alongside detailed draft legislation, “around the end of the year” and it will develop further rules after that.
Enforcement from the FCA comes after it held a roundtable with BNPL providers to discuss concerns over financial promotion, as well as the scope of upcoming regulation, and called on firms to do more to support borrowers in financial difficulty.
The watchdog also fired a warning shot to firms in August over financial promotion rules, telling firms that advertising must not mislead customers.